The original blog from IndiaThink Founder Brandi Moore...for more visit IndiaThink.com

November 13, 2007

India's Mind-bogglingly Large Middle Class

"Over the next two decades, the country's middle class will grow from about 5 percent of the population to more than 40 percent and create the world's fifth largest consumer market"

India's consumer market in 2025:

will contain 583 million people categorized as middle class

62% of the country's spending power will live in cities. 75% of city dwellers will be part of the middle class as compared with 0.1% today.

India's wealthiest citizens will total 24 million

The question is how can you as a proprietor of services and merchandise capture this emerging group of buyers?

Today most Indians participate in what McKinsey calls an "informal" economy and what most westerners would call a very large disorganized bazaar of sorts with locations stretching from backyards to streets to small shops. To put this in perspective think about the last time you got a flat tire. You have a spare tire which is now on the car and you are off to get a replacement...any option found on the side of the road, say under a tent? That tent of course has an air compressor that is operated by some type of gas powered engine. No Costco around these parts only the group of entrepreneurs stationed on the side of the road all over India ready to bargain away to get to a deal.

Because India has an informal economy its citizens seek value which is found through negotiation. Negotiation is not to find the right or best price, rather it is poised to move to a mutual agreement between parties. As Paul Davis states in his book What's This India Business; "Indians are above all else traders". Factor this in with their need to be polite and you have an interesting situation on your hands for any negotiation--its rare that you will hear an Indian say NO. Consider this in the context of buying and selling to a group that wants to bargain but doesn't feel comfortable being aggressive. How is this delimma resolved?

One interesting case study was written up on the WSJ a few months back where the owner of Big Bazzar was profiled regarding his attempt so sell to India out of a "box" store. His answer was to "replace long wide aisles with narrow, crooked ones" to make it feel chaotic, and placing battered produce in the same box as good quality to make customers believe they are getting a good deal. Indians are not accustomed to plastic containers so they are sold unpackaged razors from large bins. He hires people to walk around and talk about specials through loudspeakers to add to the already noisy environment.

Or what he does is recreate the idea of buying from the man on the side of the road with the large trucks blaring by and music playing right next to your ear as you are trying to get something that fits your rim.

Beyond the grocery store example McKinsey predicts that people will spend dollars on education, health care (private health care that is), transport (cars), and communications. They suggest that companies interested in tackling this market should get started NOW....